Investment banks achieved a $15 billion turnaround in revenues in the second quarter of 2008, according to a report by The Boston Consulting Group (BCG), but recent gains have been overshadowed by the collapse of Lehman Brothers and concerns that the financial crisis may continue to deepen.

The aggregate revenues of nine leading investment banks climbed from -$2.2 billion to $12.9 billion in the second quarter. As a result, BCG's Investment Banking Performance Index, which tracks the profits of these investment banks, jumped from -376.5 to -193.8.

The turnaround came as a result of a sharp decline in losses from fixed-income trading, together with strong growth in corporate-finance activity:

- Revenues from fixed-income markets were -$9.9 billion in the second quarter, up from -$20.9 billion in the first quarter. Write-downs continued to take a toll on some banks but were partially offset by increased revenues from interest rate and foreign-exchange products.

- Corporate-finance and advisory revenues improved from $3.0 billion to $8.8 billion. M&A advisory revenues actually declined slightly, while the volumes of equity and bond issuance grew by 76 percent and 37 percent, respectively.

"Banks' second-quarter gains followed some encouraging results in the first quarter," said coauthor Achim Schwetlick, a partner in BCG's New York office and one of the leaders of BCG's Investment Banking practice. "The industry showed signs of recovery earlier in the year, but some of the momentum generated in a few product areas was masked by continued write-downs in others."

Revenues of leading investment banks were negative in the first quarter, largely due to write-downs. Excluding write-downs, however, first-quarter revenues were 18 percent higher than in the previous quarter.

The report provides a brief overview of the implications of the financial crisis for investment banks. "Although the industry has proven resilient in the face of past crises," Schwetlick said, "the current turmoil is unprecedented. Banks will have to focus on stabilizing the business, strengthening risk management, and developing additional opportunities for growth, but cost reductions will be particularly important to the industry's recovery."

Schwetlick added, "In past crises, investment banks typically used innovative products and services to grow their way out of trouble: they looked for breakthroughs on the revenue side. Many avenues for growth and innovation are now closed. As a result, investment banks will need to prioritize efforts to reduce costs in order to restore ROE to precrisis levels."